Stock Market

Google and YouTube parent company Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) has rewarded investors who held its shares over the past decade. What about the past year, though? The results haven’t been stellar, and GOOG stock is likely to fall further as Microsoft (NASDAQ:MSFT) asserts its dominance over Alphabet in the red-hot artificial intelligence (AI) market segment.

When it comes to search engine dominance, there’s an old joke that isn’t quite as funny as it once was. It starts with a question: “What’s the most frequently searched term on Microsoft’s Bing?” The answer is: “Google.”

Because of the company’s savvy investment in machine learning, Microsoft’s Bing isn’t the punchline anymore. Consequently, Alphabet might not be an ideal tech business to invest in now, even for eager value-focused investors.

Here’s What Happened to a $1,000 Investment in GOOG Stock

Believe it or not, GOOG stock was worth $135 just a year ago. Now it’s valued at around $95, representing a 12-month decline of nearly 30%. Hence, a $1,000 investment in Alphabet would have been reduced to approximately $700.

Granted, this might pique the interest of contrarian traders. After all, it’s notable that Alphabet’s trailing-12-month price-to-earnings (P/E) ratio has come down to around 21x. This gives the appearance of a pretty good value for a technology company in the 2020s.

Yet, let’s not confuse a good value with a value trap. Just because a $1,000 investment has deteriorated to $700 doesn’t necessarily mean it’s ripe for a recovery.

Recent layoffs don’t bode well for Alphabet, as the company probably over-hired during the post-Covid-19 tech boom. Furthermore, there’s a well-known company that’s giving Alphabet a run for its money.

Microsoft’s AI-Enhanced Bing Poses a Real Threat to Alphabet’s Google

As I discussed earlier, Bing used to be the butt of a joke. Now, it’s a real threat to the long-standing search engine dominance of Alphabet’s Google.

That’s because Microsoft is taking an undeniable lead over Alphabet in the conversational/generative AI arms race. In a smart move, Microsoft is investing $10 billion in OpenAI and its famous, best-in-class chatbot, ChatGPT.

Alphabet rushed out its response to ChatGPT too soon; some of the company’s employees have acknowledged this. Alphabet’s Bard chatbot made its public debut at a live-streamed “A.I. Event,” and it’s fair to say this event was a flop.

Embarrassingly, Bard provided an inaccurate answer to a prompt in an ad released in conjunction with the event. Moreover, Alphabet failed to reveal specific details about how the company plans to integrate Bard into its search platform. In contrast, Microsoft is directly targeting Google’s crumbling search engine dominance with Bing, now powered by OpenAI’s robust machine learning technology.

What You Can Do Now

There’s a lesson to be learned here about share-price declines versus real value. These aren’t the same thing, and Alphabet’s value to its shareholders could deteriorate over the coming months.

It’s uncomfortable to consider that a one-year $1,000 investment in GOOG stock turned into roughly $700. There’s no need to engage in revenge trading now, though. Cautious investors should consider the serious threat that Microsoft will pose in 2023 and therefore choose not to invest in Alphabet for a while.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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